Abstract
The WTO agreements, to wit the Agreement on Subsidies and Countervailing Measures (SCM) and the Trade-Related Investment Measures (TRIMs) (applicable in conjunction with the General Agreement on Tariffs and Trade (GATT 1994)), contain prohibitions on the use by WTO Members (Members) of local content requirements (LCRs). LCRs are types of measures that condition the grant of a benefit, by means of subsidies or other kinds of incentives, on the use of domestic products and services. Although the SCM is more explicit as to the prohibition on the use of LCRs, WTO case law is mostly concerned with the analysis of the legality of LCRs in light of Article III.4 of GATT 1994 and Articles 2.1 and 2.2 of TRIMs. In this respect, both the Panel and the Appellate Body (AB) have coherently and consistently found LCRs to be in violation of those provisions. Findings and rulings by the Panel and the AB in Canada Renewable Energy (DS 412, DS 416) and Indian Solar Cells (DS 456), which further restricted the policy space of Members to adopt LCRs, and findings by the Panel in Brazil—Certain Measures Concerning Taxation and Charge (DS472/497) confirmed a jurisprudence constante or unequivocal jurisprudential trends in this regard. This paper sustains that such unequivocal jurisprudential trends are in line with the new global trading system, which requires new tools of industrial or incentive policies that are consentaneous with an economy ever more integrated into the global value chains in which discriminatory measures of LCRs are likely to lose relevance and purpose increasingly.
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Notes
- 1.
See Bohanes (2015), p. 2.
- 2.
Pauwelyn (2014), p. 12.
- 3.
Weiss (2008), pp. 187 and 192.
- 4.
Muchlinsky (2008), pp. 31–32.
- 5.
See Cimino et al. (2014), pp. 1–2.
- 6.
Hufbauer et al. (2013), p. 3. It is important to highlight that the authors made severe criticism on the use of LCRs, for which reason they refer to “impacts.” Pursuant to them, since 2008, such measures have reduced the global trade by the amount of US$ 464 billion, which accounted for 2% of global trade in 2010.
- 7.
See Mavroidis (2013), p. 308. For the purposes of this paper, analysis shall be focused on Article III.4 of the GATT 1994.
- 8.
Van Den Bossche and Zdouc (2013), p. 352.
- 9.
Jackson (2002), p. 214.
- 10.
Pursuant to Article III.4 of GATT 1994, “[the] products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.”
- 11.
In addition to its commercial nature, the LCRs constitute measures related to investments. The relation between trade and investment had already been made clear in 1984 in the FIRA case. The FIRA confirmed that obligations existing under the GATT were applicable to requirements imposed by governments in an investment context to the extent that such requirements resulted in discrimination between domestic and imported products. According to the Panel: “6.1… [the] practice of Canada to allow certain investments subject to the Foreign Investment Review Act conditional upon written undertakings by the investors to purchase goods of Canadian origin, or goods from Canadian sources, is inconsistent with Article III:4 of the General Agreement according to which contracting parties shall accord to imported products treatment no less favourable than that accorded to like products of national origin in respect of all internal requirements affecting their purchase.” Canada—Administration of the Foreign Investment Review Act, L/5504 - 30S/140, Panel Report adopted on February 7, 1984.
- 12.
Hestermeyer and Nielsen (2014), pp. 567–568.
- 13.
In Canada – Certain Measures Affecting the Renewable Energy Generation Sector and Canada Measures Relating to the Feed-In Tariff Programme, the AB has clearly stated its understanding on this matter: “5.56 Article III: 8 (a) therefore establishes a derogation from the national treatment obligation of Article III for government procurement activities falling within its scope. Measures satisfying the requirements of Article III: 8 (a) are not subject to the national treatment obligations set out in other paragraphs of Article III. Article III: 8 (a) is a derogation limiting the scope of the national treatment obligation and it is not a justification for measures that would otherwise be inconsistent with that obligation” (WT/DS412/AB/R, DS426/AB/R, circulated on May 6, 2013).
- 14.
“Article 2 National Treatment and Quantitative Restrictions 1. Without prejudice to other rights and obligations under GATT 1994, no Member shall apply any TRIM that is inconsistent with the provisions of Article III or Article XI of GATT 1994. 2. An illustrative list of TRIMs that are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994 and the obligation of general elimination of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994 is contained in the Annex to this Agreement. ANNEX Illustrative List 1. TRIMs that are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994 include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which require: (a) the purchase or use by an enterprise of products of domestic origin or from any domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production;…”
- 15.
Indonesia – Certain Measures Affecting the Automobile Industry (Indonesia Autos), DS54, DS55, DS59, DS64, report of the Panel adopted on July 23, 1998.
- 16.
Canada – Certain Measures Affecting the Automotive Industry (Canada – Autos), DS139, DS124, AB Report adopted on June 19, 2000.
- 17.
India – Measures Affecting the Automotive Sector and India – Measures Affecting Trade and Investment in the Motor Vehicle Sector, DS146, DS175, Panels Reports adopted on April 5, 2002.
- 18.
China – Measures Affecting Imports of Automobile Parts, DS339, DS340, DS342, Panel and AB reports adopted on January 12, 2009.
- 19.
Canada – Certain Measures Affecting the Renewable Energy Generation Sector and Canada – Measures Relating to the Feed-In Tariff Programme (Canada – Feed-In Tariff Programme) DS412, DS426, Panel and AB Reports adopted on May 6, 2013.
- 20.
India – Certain Measures Relating to Solar Cells and Solar Modules, DS456, Panel and AB Reports adopted on October 14, 2016.
- 21.
Bohanes (2015), p. 14.
- 22.
Stephenson (2013), p. 14.
- 23.
Brazil – Certain Measures Concerning Taxation and Charge, DS472/497. Panel’s Reports circulated on August 30, 2017.
- 24.
See in this respect Randoo (2015), p. 6.
References
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Case Law
Brazil – Certain Measures Concerning Taxation and Charge, DS472/497, Panel’s Reports circulated on August 30, 2017
Canada – Administration of Foreign Investment Review Act (DS L/5504 – 30S/140), Panel Report adopted on February 7, 1984
Canada – Certain Measures Affecting the Automotive Industry (Canada – Autos), DS139, DS124, AB Report adopted on June 19, 2000
Canada – Certain Measures Affecting the Renewable Energy Generation Sector and Canada Measures Relating to the Feed-In Tariff Programme (Canada Feed – In Tariff Programme), WT/DS412/AB/R, DS426/AB/R, circulated on May 6, 2013
China – Measures Affecting Imports of Automobile Parts, DS339, DS340, DS342, Panel and AB reports adopted on January 12, 2009
India – Certain Measures Relating to Solar Cells and Solar Modules, DS456, Panel and AB Reports adopted on October 14, 2016
India – Measures Affecting the Automotive Sector and India – Measures Affecting Trade and Investment in the Motor Vehicle Sector, DS146, DS175, Panels Reports adopted on April 5, 2002
Indonesia – Certain Measures Affecting the Automobile Industry (Indonesia Autos), DS54, DS55, DS59, DS64, report of the Panel adopted on July 23, 1998
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Junior, U.C. (2019). The Impact of WTO Case Law on the Use of Local Content Requirements. In: do Amaral Júnior, A., de Oliveira Sá Pires, L.M., Lucena Carneiro, C. (eds) The WTO Dispute Settlement Mechanism. Springer, Cham. https://doi.org/10.1007/978-3-030-03263-0_7
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